Three decisions that talk to each other.

CPP: when to start

The standard age is 65. Taking it earlier or later changes the amount permanently.

From 60	Reduced by 0.6% for each month before 65, so 7.2% a year. Starting at 60 means roughly 36% less, for life
At 65	The calculated amount
To 70	Increased by 0.7% for each month after 65, so 8.4% a year. Waiting until 70 means roughly 42% more, for life

There is no advantage to waiting beyond 70. The payments are indexed, so the increase compounds against inflation rather than being eroded by it.

Why there is no single answer

The arithmetic favours delaying if you live long enough. The break-even against taking it at 65 typically falls somewhere in the early to mid eighties, and against taking it at 60 rather sooner. But a break-even calculation answers only one question, and most people are asking several.

• Health and family history. The delay pays off only if you are there to collect it. This is uncomfortable to discuss and it is the most important input
• Whether you need the money now. Taking CPP early to avoid drawing down savings that are growing may be sensible. Taking it early while savings sit untouched usually is not
• What else is taxable that year. Adding CPP to a high-income year is expensive. Bridging a low-income gap between retiring and 65 with CPP may cost very little tax
• Whether you are still working. Under 65 and receiving CPP, you must keep contributing, which earns a post-retirement benefit. Between 65 and 70 you can elect to stop
• Your spouse. A survivor's pension is capped, and the interaction between two CPP entitlements means the decision is a household one rather than an individual one
• Longevity risk. A larger indexed payment for life is insurance against outliving your savings. That has a value beyond the expected total

Three practical points

• Ask for tax to be withheld. CPP and OAS are taxable and arrive with nothing deducted unless you request it. Service Canada will withhold on request, and doing so removes most of the April surprise described further down this page
• The survivor's pension is capped. A surviving spouse does not simply add the deceased's CPP to their own; the combined amount is limited, and someone already receiving a full CPP may gain little. That matters when a couple is deciding which of them should delay
• There is a death benefit, a one-off lump sum paid to the estate or to whoever paid the funeral costs. It is modest, it must be applied for, and it is taxable to whoever receives it rather than being reported on the deceased's final return. It gets missed and it gets misreported. See estates and final returns

OAS: applying, and fixing it if you did not

Old Age Security is not based on employment. It depends on years of residence in Canada after age 18, with 40 years giving a full pension and lesser periods giving a proportionate one. Ten years of residence is generally the minimum to receive it while living in Canada.

Living outside Canada is a different test. Payments can generally continue abroad only where you accumulated at least 20 years of residence after 18; below that, payments stop after a period of absence. This matters to anyone considering a long stay elsewhere, and to people who spent much of their working life in another country. See snowbirds and US tax.

You may or may not be enrolled automatically

Service Canada enrols many people automatically and sends a letter the month after the 64th birthday. If you received that letter, there is nothing to do but check it.

If no letter arrived, you must apply. This is where people lose money, because nothing prompts you and the payments simply never start. Time spent abroad, gaps in the records or a recent move are common reasons for not being enrolled automatically.

Three ways to apply:

• Online through My Service Canada Account, which is quickest if you already have one
• By paper, completing the application form and mailing it
• In person at a Service Canada centre, which is the route worth using if the paperwork is at all uncertain. Take identification and, if you have lived outside Canada, whatever documents you have about those periods

Apply about six months before you want payments to begin.

Deferring, and when not to

OAS can be deferred to 70, increasing by 0.6% a month, up to about 36% more. The reasoning resembles CPP.

With one important exception. The Guaranteed Income Supplement, for those with low income, is not increased by deferring, and it cannot be received during the deferral. For someone who would qualify for GIS, deferring OAS is usually a clear mistake, and it is advice that gets applied generally when it should not be.

The recovery tax

Above an income threshold, OAS is clawed back at 15 cents on the dollar, and above an upper threshold it disappears entirely. It is based on net world income and is recovered by reducing payments in the following July to June period, so a single high-income year affects the next year's cash flow.

Because the clawback works on total income, most of the planning is about the shape of income rather than its amount: pension splitting, the timing of RRIF withdrawals, when to realize capital gains, and whether to draw from registered or non-registered accounts in a given year.

The age amount works the same way, reducing as income rises and disappearing above a threshold, so income shape affects it too. Two credits and one benefit all moving with the same number is why the timing of a large withdrawal deserves more thought than it usually gets.

The RRSP deadline at 71

An RRSP cannot continue indefinitely. By 31 December of the year you turn 71, it must be dealt with, and there are three options.

Withdraw it	The entire amount becomes income in that year. Almost never sensible for a meaningful balance
Convert to a RRIF	The usual choice. The investments continue; a minimum must be withdrawn each year
Buy an annuity	Exchange the balance for a guaranteed income stream

These are not exclusive. Converting part to a RRIF and annuitizing part is common and is often better than either alone.

How RRIF minimums work

Withdrawals must begin the year after the RRIF is established, and the minimum is a percentage of the balance at the start of each year, set by your age. It begins in the region of 5% at 71 and rises steadily with age, reaching 20% in the mid-nineties.

Two features worth knowing before setting one up:

• You can use a younger spouse's age. This lowers the required minimum, leaving more inside the plan for longer. The election is made when the RRIF is established and cannot be changed afterwards, so it is a decision to take deliberately rather than to discover later
• There is no withholding tax on the minimum. Amounts above the minimum have tax withheld; the minimum itself does not. So a retiree taking only the minimum receives it in full, spends it, and finds tax owing on it the following April. Where that is a problem, withholding can be requested voluntarily or instalments arranged

Converting early, on purpose

Nothing requires waiting until 71. Converting a small portion of an RRSP to a RRIF at 65 creates eligible pension income, which does two things: it qualifies for the pension income amount, a modest annual credit that is otherwise unused, and it becomes eligible for splitting with a spouse.

For a couple where one has most of the registered savings, starting that at 65 rather than 71 can be worth doing for six years running.

What happens on death

This is the part that surprises families. A RRIF passing to a spouse or common-law partner can generally roll over without immediate tax. Passing to anyone else, the entire remaining value is brought into income on the final return, frequently producing the largest tax bill of the person's life.

A $400,000 RRIF can leave a six-figure liability against an estate whose other assets are a house and a chequing account. Knowing that in advance changes decisions about withdrawal pace, insurance and what the estate will need in cash. See estates and final returns.

The TFSA in retirement

Most people now have one, and it behaves differently from everything else on this page in a way that makes it the most useful account to hold in later life.

• Room keeps accruing whether or not you have income. A retiree with no earned income still gains room every year, and unused room from earlier years carries forward indefinitely
• Nothing about it appears on your return. Not the growth, not the withdrawals. That is why it sits outside the recovery tax and the age amount
• It is the natural home for money you may need irregularly, because taking a large amount out in one year carries no tax consequence at all

Two things that go wrong

Re-contributing too early. A withdrawal restores contribution room, but not until 1 January of the following year. Putting the money back in the same calendar year, without separate unused room, is an over-contribution and attracts a penalty of 1% per month on the excess for as long as it remains. This is the single most common TFSA error and it catches people who were being careful.

Naming a beneficiary instead of a successor holder. These sound similar and are not.

Successor holder	Available to a spouse or common-law partner only. The TFSA simply becomes theirs, intact, continuing to grow tax-free. No contribution room of theirs is used
Beneficiary	The value at the date of death passes tax-free, but any growth after that date is taxable, and the account does not continue as a TFSA

For a married couple the successor holder designation is almost always the better choice, and the form is usually completed once at the institution and never revisited. It is worth checking what yours actually says.

Where it matters most

For anyone whose income is low enough to receive the Guaranteed Income Supplement, the difference between a TFSA and an RRSP is stark. A RRIF withdrawal is income and reduces GIS, sometimes at a very high effective rate once the clawback is added to the tax. A TFSA withdrawal does neither.

That reverses the usual advice. For a modest-income earner, contributing to a TFSA rather than an RRSP is frequently the better long-run decision, precisely because of what happens after 65 rather than what happens at the moment of contribution.

Annuities

An annuity converts a lump sum into a guaranteed income. It removes investment risk and longevity risk, and it removes flexibility, which is the whole trade.

• Life annuities pay until death. Term certain annuities pay for a fixed period
• Joint and survivor options continue to a spouse, at a lower monthly amount
• Guarantee periods ensure a minimum number of payments even on early death
• Indexing protects against inflation and costs a lower starting payment
• Interest rates at the moment of purchase are locked in for life, which makes timing consequential in a way that is easy to underestimate

Purchased with registered funds, the payments are fully taxable as received, which keeps the tax treatment simple.

This is a product decision rather than a tax one. Which annuity, from which insurer, on what terms, requires a licensed advisor. What I can do is tell you what a given income stream does to your tax position and your OAS.

Pension income splitting

Up to half of eligible pension income can be reported on a spouse's return instead of your own. Where one person holds most of the retirement income, this can move a substantial amount into a lower bracket.

What qualifies depends on age, which is the part that catches people:

Before 65	Essentially only income from a registered pension plan, the traditional company pension
From 65	Also RRIF withdrawals and annuity payments from registered savings

CPP and OAS do not qualify. CPP has its own separate mechanism, pension sharing, arranged through Service Canada rather than on the return, requiring an application and both spouses to be at least 60.

Three things about splitting worth knowing. It is an annual election made on both returns, so it is not set once and forgotten. Beyond the bracket saving, it can create eligible pension income for the receiving spouse and unlock a credit they otherwise could not use. And it can reduce or eliminate the OAS recovery tax by moving income out of the clawback range, which is frequently worth more than the bracket difference itself.

What to have ready

Questions